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A model for a large investor trading at market indifference prices. II: continuous-time case

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  • Peter Bank

    (Technische Universit\"at Berlin)

  • Dmitry Kramkov

    (Carnegie Mellon and Oxford)

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    Abstract

    We develop a continuous-time model for a large investor trading at market indifference prices. In analogy to the construction of stochastic integrals, we investigate the transition from simple to general predictable strategies. A key role is played by a stochastic differential equation for the market makers' utility process. The analysis of this equation relies on conjugacy relations between the stochastic processes with values in the spaces of saddle functions associated with the representative agent's utility.

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    File URL: http://arxiv.org/pdf/1110.3229
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1110.3229.

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    Date of creation: Oct 2011
    Date of revision: Jan 2014
    Handle: RePEc:arx:papers:1110.3229

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    Web page: http://arxiv.org/

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